Make Military Deposits to Increase Spousal Benefits

Military deposits can increase spousal benefits if a federal employee passes away before or after retirement.

Federal employees with active-duty military time have the opportunity to make military deposits. Military deposits can also be a benefit to a retired federal employee’s spouse.

If you are a federal employee and a military veteran who likes slideshows, here is an Office of Personal Management (OPM) link that can provide you with all the details. OPM also shares this information in the more traditional narrative style to understand the opportunity.

The deposit must be paid in full while you are a federal employee and cannot be paid after you separate from federal service. Otherwise, it will not be creditable for retirement purposes.

Making the military deposit within the first 2 years of federal service can be done without any applied interest. After the 2-year grace period, interest is accrued and compounded annually at a variable interest rate. 

What are the Benefits of Making a Military Deposit?

The main benefit of buying your military time is that it can significantly increase your monthly annuity payment at retirement.

Another benefit of making the military deposit is that as a result of doing so, it will count as time toward the 10-year threshold for creditable service required for a spouse to receive a monthly survivor annuity in the event of the death of a federal employee. 

For example, if a federal employee made a military deposit for 4 years of service, completed 6 years of creditable service, and then died, the spouse would be granted a monthly survivor annuity. This information is detailed in Section 703B.1-1 of the CSRS and FERS Handbook. 

If an employee dies in service with at least 10 years of creditable federal service, the spouse is entitled to a survivor annuity which is equal to 50% of the annuity the employee would have been entitled at the time of his or her death. The annuity will be eligible for cost-of-living adjustments (COLA).

The annuity is computed based on the years of service the deceased employee had, the type of service, and the high-three average salary on the date of death. Any unused sick leave may also be used in the computation. A surviving spouse of an employee benefits significantly from a monthly spouse annuity. 

There are many online sources that underscore the linkage between military deposits and federal retirement. Dallen Haws’ FedSmith article, How a Military Deposit Affects Your Retirement, outlines the concept with several illustrations. 

By the way, the link I provided to Haws’ article also includes readers’ comments. Accompanying commentary is an advantage of FedSmith articles. The comments amplify information on the scope of the article’s context. These observations from readers can be useful because they allow others to weigh in with not just their opinions on the topic but sometimes their actual experience.

Military Deposits and Survivor Benefits

A surviving spouse, in the event the federal employee neglected to make a military deposit or complete payment for the military deposit, may purchase a military deposit in order to attain time for the 10 years of creditable service or increase the total creditable service for an enhanced monthly survivor annuity. This information is also provided in the CSRS and FERS Handbook in Section 70B.2-2.

Placing a surviving spouse, however, during the grieving process in the position of having to make a military deposit is negligent financial planning. Veterans should be proactive and approach the military deposit decision as the equivalent of taking responsibility for purchasing life insurance.

Taking the initiative for the military deposit early provides a powerful peace of mind for providing the spouse with access to a lifetime monthly annuity. Doing so within the first 2 years avoids any applied interest for the military buyback.

A military deposit also provides a federal employee upon retirement with an enhanced monthly annuity and therefore allows a larger monthly benefit for the spousal election. It also allows one to even retire earlier than with civilian service alone. For example, you began your federal career at age 30 and your Minimum Retirement Age is 57. By making a military deposit for 3 years, you could retire as early as age 57 by working 27 years instead of 30 since the military time would count toward creditable service.

To recap: Do not think of the military deposit just as a means just to increase retirement benefits. It also serves as a powerful source of additional creditable service computation for your spouse in the event of your death prior to retirement, and if you haven’t taken advantage of your military deposit option, then consider sharing this article with your spouse. That way he or she will either spur you to initiate the deposit or be prepared if you don’t.

About the Author

Francis Xavier (FX) Bergmeister retired from the USMC and the F.B.I. Consider following him on LinkedIn as he shares articles from others about retirement and other financial topics. He also provides retirement seminars thru Federal Career Experts.